Coca-Cola to buy Costa Coffee from Whitbread: What it means for Caffeine industry

To take on Starbucks, Nestlé and JAB Holding, Coca-Cola is all set to buy the Costa coffee chain from UK leisure group owner Whitbread in a deal worth £3.9 billion.

With this transaction, Coca-Cola will overnight into the UK’s biggest coffee shop player and give it a foothold in what is one of the world’s fastest-growing drinks categories.

Alison Brittain, the chief executive of Costa Coffee’s owner Whitbread said, “The coffee chain had been approached by a number of potential buyers but Coke’s desire to snap up the 4,000-store chain was a “dream deal” for investors.”

The transaction represents a leap into the global coffee market, where it has little presence.

Whitbread bought Costa, which is now the UK’s biggest coffee chain, for just £19m in 1995. At that time, it had just 39 outlets. It has now expanded to more than 2,400 UK coffee shops, as well as some 1,400 outlets in 31 overseas markets. Costa Express has 8,237 vending machines worldwide.

When the deal completes in the first half of next year Coke will own 4,000 Costa stores in 32 countries, with more than 2,400 of those in the UK, as well as more than 8,000 self-serve Express machines.

“Hot beverages are one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market through a strong coffee platform,” James Quincey, president and chief executive of Coca-Cola was quoted as saying from the Financial Times.

Recently, Nestlé had closed the deal granting it access to perpetual global rights to market Starbucks good and products around the globe. As per the association, the two companies will work closely together on the existing Starbucks range of roast and ground coffee, whole beans, instant and portioned coffee.

Currently, the coffee chain in India is run by Devyani International Pvt. Ltd, a company of Ravi Jaipuria-owned RJ Corp. that also owns Varun Beverages Ltd.

According to a Livemint report, Costa Coffee’s master franchisee in India is Devyani International, which also runs a bunch of quick-service restaurants such as Pizza Hut, KFC, Vaango, Foodie’s Bar and a few other international brands in India. Costa Coffee entered the Indian market under an exclusive franchise agreement with Devyani International in 2005 and had about 100 outlets by 2013.

According to research firm Euromonitor, the global coffee industry is pegged at more than USD 80billion and has been expanding at an annual rate of more than 5 percent.